IDEAS home Printed from https://ideas.repec.org/a/eee/intfor/v30y2014i4p1098-1109.html
   My bibliography  Save this article

Demographic forecasts and fiscal policy rules

Author

Listed:
  • Lassila, Jukka
  • Valkonen, Tarmo
  • Alho, Juha M.

Abstract

All quantitative evaluations of fiscal sustainability that include the effects of population ageing must utilize demographic forecasts. It is well known that such forecasts are uncertain, and some studies have taken that into account by using stochastic population projections jointly with economic models. We develop this approach further by introducing regular demographic forecast revisions that are embedded in stochastic population projections. This allows us to separate, for each demographic outcome and under different policy rules, the expected and realized effects of population ageing on public finances. In our Finnish application, demographic uncertainty produces a considerable sustainability risk. We consider policies that reduce the likelihood of getting highly indebted and demonstrate that, although demographic forecasts are uncertain, they contain enough information to be useful in forward-looking policy rules.

Suggested Citation

  • Lassila, Jukka & Valkonen, Tarmo & Alho, Juha M., 2014. "Demographic forecasts and fiscal policy rules," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1098-1109.
    • Handle: RePEc:eee:intfor:v:30:y:2014:i:4:p:1098-1109
    DOI: 10.1016/j.ijforecast.2014.02.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0169207014000570
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijforecast.2014.02.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alho, Juha M. & Hougaard Jensen, Svend E. & Lassila, Jukka & Valkonen, Tarmo, 2005. "Controlling the effects of demographic risks: the role of pension indexation schemes," Journal of Pension Economics and Finance, Cambridge University Press, vol. 4(2), pages 139-153, July.
    2. Alan J. Auerbach & Ronald Lee, 2009. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 43-68, National Bureau of Economic Research, Inc.
    3. Ronald D. Lee & Michael W. Anderson & Shripad Tuljapurkar, 2003. "Stochastic Forecasts of the Social Security Trust Fund," Working Papers wp043, University of Michigan, Michigan Retirement Research Center.
    4. Jukka Lassila & Tarmo Valkonen, 2004. "Pre-funding Expenditure on Health and Long-term Care under Demographic Uncertainty," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 29(4), pages 620-639, October.
    5. Jukka Lassila & Tarmo Valkonen, 2007. "The Finnish Pension Reform of 2005," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 32(1), pages 75-94, January.
    6. Lee, Ronald & Tuljapurkar, Shripad, 1998. "Uncertain Demographic Futures and Social Security Finances," American Economic Review, American Economic Association, vol. 88(2), pages 237-241, May.
    7. Valkonen, Tarmo, 2002. "Demographic Uncertainty and Taxes," Discussion Papers 816, The Research Institute of the Finnish Economy.
    8. Eric M. Leeper, 2010. "Monetary science, fiscal alchemy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 361-434.
    9. Nico Keilman, 2008. "European Demographic Forecasts Have Not Become More Accurate Over the Past 25 Years," Population and Development Review, The Population Council, Inc., vol. 34(1), pages 137-153, March.
    10. Alho, Juha M., 2014. "Forecasting demographic forecasts," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1128-1135.
    11. John Creedy & Grant M Scobie, 2002. "Population Ageing and Social Expenditure in New Zealand: Stochastic Projections," Treasury Working Paper Series 02/28, New Zealand Treasury.
    12. Dr Martin Weale, 2005. "Fiscal implications of demographic uncertainty for the UK," National Institute of Economic and Social Research (NIESR) Discussion Papers 250, National Institute of Economic and Social Research.
    13. Auerbach,Alan J. & Lee,Ronald D. (ed.), 2001. "Demographic Change and Fiscal Policy," Cambridge Books, Cambridge University Press, number 9780521662444.
    14. Alho, Juha M. & Vanne, Reijo, 2006. "On predictive distributions of public net liabilities," International Journal of Forecasting, Elsevier, vol. 22(4), pages 725-733.
    15. repec:zbw:bofrdp:2008_028 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. I. Bryzhan & V. Chevhanova & Î. Hryhoryeva & L. Svystun, 2020. "Approaches to forecasting demography trends in the management of integrated area development," Economy and Forecasting, Valeriy Heyets, issue 2, pages 21-42.
    2. David C. Lane & Özge Pala & Yaman Barlas & Willem L. Auping & Erik Pruyt & Jan H. Kwakkel, 2015. "Societal Ageing in the Netherlands: A Robust System Dynamics Approach," Systems Research and Behavioral Science, Wiley Blackwell, vol. 32(4), pages 485-501, July.
    3. Määttänen, Niku & Alho, Juha, 2014. "Response to updated mortality forecasts in life cycle saving and labor supply," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1120-1127.
    4. Lassila, Jukka, 2018. "Aggregate Risks, Intergenerational Risk-Sharing and Fiscal Sustainability in the Finnish Earnings-Related Pension System," ETLA Working Papers 57, The Research Institute of the Finnish Economy.
    5. Alho, Juha & Lassila, Jukka, 2022. "Assessing Components of Uncertainty in Demographic Forecasts with an Application to Fiscal Sustainability," ETLA Working Papers 92, The Research Institute of the Finnish Economy.
    6. Balamatsias, Pavlos, 2018. "Democracy and government spending," MPRA Paper 84975, University Library of Munich, Germany.
    7. Alho, Juha M., 2014. "Forecasting demographic forecasts," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1128-1135.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lassila, Jukka & Valkonen, Tarmo & Alho, Juha M., 2011. "Fiscal sustainability and policy rules under changing demographic forecasts," Discussion Papers 1265, The Research Institute of the Finnish Economy.
    2. Honkatukia, Juha, 2011. "Three takes on sustainability," Research Reports P58, VATT Institute for Economic Research.
    3. Alan J. Auerbach & Ronald Lee, 2009. "Notional Defined Contribution Pension Systems in a Stochastic Context: Design and Stability," NBER Chapters, in: Social Security Policy in a Changing Environment, pages 43-68, National Bureau of Economic Research, Inc.
    4. Lassila, Jukka & Valkonen, Timo, 2008. "Population ageing and fiscal sustainability in Finland : a stochastic analysis," Research Discussion Papers 28/2008, Bank of Finland.
    5. Auerbach, Alan J. & Lee, Ronald, 2011. "Welfare and generational equity in sustainable unfunded pension systems," Journal of Public Economics, Elsevier, vol. 95(1), pages 16-27.
    6. Lassila, Jukka & Valkonen, Timo, 2008. "Population ageing and fiscal sustainability in Finland: a stochastic analysis," Bank of Finland Research Discussion Papers 28/2008, Bank of Finland.
    7. Lassila, Jukka, 2018. "Aggregate Risks, Intergenerational Risk-Sharing and Fiscal Sustainability in the Finnish Earnings-Related Pension System," ETLA Working Papers 57, The Research Institute of the Finnish Economy.
    8. David C. Lane & Özge Pala & Yaman Barlas & Willem L. Auping & Erik Pruyt & Jan H. Kwakkel, 2015. "Societal Ageing in the Netherlands: A Robust System Dynamics Approach," Systems Research and Behavioral Science, Wiley Blackwell, vol. 32(4), pages 485-501, July.
    9. repec:zbw:bofrdp:2008_028 is not listed on IDEAS
    10. Fehr, Hans & Habermann, Christian, 2006. "Pension reform and demographic uncertainty: the case of Germany," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(1), pages 69-90, March.
    11. Yueqiang Zhao & Manying Bai & Peng Feng & Mengyuan Zhu, 2018. "Stochastic Assessments of Urban Employees’ Pension Plan of China," Sustainability, MDPI, vol. 10(4), pages 1-15, March.
    12. Nicolas Afflatet, 2016. "The impact of population ageing on public debt. A panel analysis for eighteen european countries," Working Papers 1615, University of Strathclyde Business School, Department of Economics.
    13. Alho, Juha M. & Vanne, Reijo, 2006. "On predictive distributions of public net liabilities," International Journal of Forecasting, Elsevier, vol. 22(4), pages 725-733.
    14. Jukka Lassila & Tarmo Valkonen, 2018. "Longevity, Working Lives, And Public Finances," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 467-482, July.
    15. Määttänen, Niku & Alho, Juha, 2014. "Response to updated mortality forecasts in life cycle saving and labor supply," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1120-1127.
    16. Lassila, Jukka & Valkonen, Tarmo, 2007. "Longevity Adjustment of Pension Benefits," Discussion Papers 1073, The Research Institute of the Finnish Economy.
    17. Samir Soneji & Gary King, 2012. "Statistical Security for Social Security," Demography, Springer;Population Association of America (PAA), vol. 49(3), pages 1037-1060, August.
    18. Kobsak Pootrakool & Anak Serichetpong, 2007. "Safeguarding out Nation's Nest Egg: Necessary Reforms to our Social Security System," Working Papers 2007-05, Monetary Policy Group, Bank of Thailand.
    19. Eric M. Leeper & Todd B. Walker, 2011. "Fiscal Limits in Advanced Economies," Economic Papers, The Economic Society of Australia, vol. 30(1), pages 33-47, March.
    20. Martin S. Feldstein & Jeffrey B. Liebman, 2002. "The Distributional Effects of an Investment-Based Social Security System," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 263-326, National Bureau of Economic Research, Inc.
    21. Jagadeesh Gokhale & Laurence J. Kotlikoff, 2002. "Social Security's Treatment of Postwar Americans. How Bad Can It Get?," NBER Chapters, in: The Distributional Aspects of Social Security and Social Security Reform, pages 207-262, National Bureau of Economic Research, Inc.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intfor:v:30:y:2014:i:4:p:1098-1109. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijforecast .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.